Arcadia freezes out Icelanders

ARCADIA today turned its back on Icelandic predator Baugur, four months after the company first signalled an interest in making a £570m bid for the Top Shop-to-Dorothy Perkins retailer.

The move sent Arcadia shares crashing 7% to 251p, knocking £36m off the group's market capitalisation.

Arcadia said: 'The prospect of Baugur being able to make a fully financed offer for the company within an acceptable timetable is limited. Accordingly, the board of Arcadia has today discontinued discussions with Baugur.'

The decision shocked the City, which was under the impression that a bid from the Icelandic team was imminent. There was a growing belief that Baugur had amassed the necessary funding, provoked by suggestions that property companies and Royal Bank of Scotland were willing to back the group. Arcadia attempted to limit the downturn in its share price by saying that trading conditions have been good and it expects half-year profits to 23 February to be at least £52m.

Chief executive Stuart Rose said: 'We are confident that we will deliver strong results for the first half although as we stated in our trading update on 9 January, the outcome for the financial year to August 2002 will depend upon the continuing strength of consumer demand.'

Market speculation suggested that any bid would be pitched at about 300p a share. Baugur first revealed its interest in acquiring Arcadia in October and has spent much of the past three months trying to raise finance for the deal.

The bid approach was never formalised but even at an informal level, it surprised the City. Arcadia's sales are about seven times those of its predator although some analysts believed Baugur planned to cut Arcadia's stable of brands to help fund a bid. It is unclear whether Baugur will sell its 20% stake in Arcadia in the light of today's move or instead take an offer straight to shareholders.

Arcadia shares have soared from 38p in late 2000, when Rose, who was formerly head of the Booker cash-and-carry chain, was made chief executive.

Had the bid materialised, Rose stood to make at least £16m from the exercise of share options granted when he joined the company little more than a year ago.